Euro zone leaders tonight agreed a second bailout package for Greece as well as sweeping changes to its financial rescue fund which will see the interest rate on Ireland’s bailout package cut by 2 per cent.
The new measures, agreed by euro leaders at an emergency summit in Brussels, are aimed at helping Greece overcome its debt crisis and prevent market instability from spreading through the region.
The revised terms of the Irish package will see the interest rate on loans cut by two percentage points from 6 per cent to just under 4 per cent.
The pact will be of big benefit to Ireland, with potential annual savings of between €600 and €800 million a year.
The deal alsoprovides for greater flexibility on Ireland's loan maturities which can now be extended from seven to 15 years if required.
Taoiseach Enda Kenny tonight welcomed the revised terms of Ireland's aid package, saying the country's debt burden had been eased.
“We’ve achieved a substantial interest rate reduction and greater flexibility in terms of the fund without conditions attached,” he said.
The overall package of measures will see euro zone countries and the International Monetary Fund give Greece a second bailout worth €109 billion, on top of the €110 billion already granted a year ago.
Banks and other private investors will contribute some €37 billion to the rescue package by either rolling over Greek debt, swapping it for new bonds with lower interest rates or selling the bonds back to Greece at a low price.
The euro zone will provide some form of guarantees to the new Greek bonds rated at “selective default” so that Greek banks will be able to continue accessing liquidity support from the European Central Bank.
In the case of bond rollovers or swaps, the new Greek bonds issued to the banks would have long maturities of up to 30 years and low rates, according to the Institute of International Finance, the group representing the private sector creditors.
French president Nicolas Sarkozy estimated the rates would average 4.5 per cent.
“For the first time since the beginning of this crisis, we can say that the politics and the markets are coming together,” said European Commission president Jose Manuel Barroso.
Leaders also agreed to provide the new euro zone rescue loans to Greece at a 3.5 per cent interest rate and with an average maturity of at least 15 years. The maturities will be up to 30 years and have a grace period of 10 years.
The leaders also overhauled their bailout fund, allowing it to provide a “precautionary programme” such as short-term credit lines.
On top of that, the fund will be able to recapitalise banks in countries which have not been bailed out and it will be allowed to buy bonds on the secondary market, taking pressure off countries experiencing an investor sell-off.
Mr Sarkozy said Portugal and Greece will also get lower interest rates on their bailout loans, but there will not be any private sector involvement in their support programmes.
“Private sector involvment will be limited to Greece, and Greece only,” EU president Herman Van Rompuy said.
Additional reporting by agencies
